6 Ways Amazon Is Trying to 'Nail' Traditional Retailers

SCOTTSDALE, Ariz. -- If you’re not worried about Amazon as a retail threat, perhaps you should be, said Babs Ryan, global growth consultant for software company ThoughtWorks at CSP’s Outlook Leadership Conference in Scottsdale, Ariz.

“CVS certainly wasn’t thinking that Amazon was a huge threat, and then they bought Whole Foods,” Ryan said. Now, the e-commerce giant is getting into the mail-order pharmacy industry. “All the businesses they get into are stepping stones to other businesses,” she said.

Here’s why Amazon is poised to change the future of convenience, and what convenience-store retailers can do to stay relevant ...

Data is one of Amazon’s biggest assets and one of the reasons convenience stores should be frightened of the company, said Ryan. Through the Amazon Echo, the company is recording conversations people are having in their homes even when they aren’t using the personal assistant device, she said. But the company isn’t just mining for analytics where consumers live. “When they put Amazon lockers in stores, they didn’t do that to have delivery places,” she said. “They did it with 7-Eleven and some of the other convenience stores to collect data on who was going into those convenience stores, so they can figure out how to nail you.”

This isn’t a new strategy for the company, said John Rossman, founder of the third-party marketplace for Amazon and managing director for business consultant Alvarez & Marsal. Amazon calls this tactic “launch and learn,” where the company partners with businesses in a new category, learns from data and looks up and downstream for opportunities to move in on their profit margins, Rossman said.

One of the reasons Amazon is a disruptor to so many industries is because they aren’t beholden to traditions of the business, Rossman said. However, the company doesn’t just uproot the status quo to be different. “Everything they do is a with a plan to do the next thing,” Ryan said.

For instance, the technology used in Amazon Go’s unmanned stores was first perfected in its warehouses to pull pallets, she said. “They have a plan five years out, and they might not be going after your fuel business, but you can bet they’re trying to figure out if people are going to have to charge their electric cars or maybe they’ll be self-charging cars, and how can we leverage that,” she said.

It can be difficult to stand a chance against a company with access to so much data, but the first rule is to know thy customer, Rossman said. “You have to get systematic in understanding who your customers are and breaking that down into smaller and smaller groups until it’s a group of one,” he said. Rossman recommends that retailers focus a bit less on competitors and more on customers.

Amazon is known for innovation, but it underplayed what a world-class operator it is, Rossman said. “The things that allows them to be a low-bureaucratic conglomerate business today is the leadership principles from the top,” he said. “That defines how we work together and how we think through problems.” But it’s also the brand’s obsession with instrumentation and metrics from the bottom, he said. For instance, Amazon looks beyond financial metrics, at real-time data on operations and customer experience.

That level of sophistication means getting into the home-delivery business is not the answer, Ryan said. “Why would you go [and] try to compete on other people’s turf, where they are the expert,” she said. “You have fuel.” But convenience stores can take note from Amazon’s use of predictive analytics and voice recognition. “Somebody is sitting at the gas pump, [so] why wouldn’t you use [your] natural voice—and you know who they are because they’ve already swiped their card—to say, 'Hey, Jim, I see you’re out there pumping gas, and last time you were here you got a quart of milk, can I bring it to your car?' ” she said.

Amazon no longer acts like an underdog and has taken on the role of a market leader, Rossman said. “They are humble, and they are aware of their environments and how the game is changing—and they are willing to change along with it,” he said. But at the same time, the digital retailer has built on durable business strategies: more selection, less cost and shorter delivery. Rossman said Amazon has been focusing on alleviating that last-mile bottleneck.

But, c-stores still have the upper ground for consumers who are on the go and in a car, Ryan said. Most people don’t know what they are going to have for dinner by noon that day, so offering prepared foods and bringing it out to people’s cars can be a new source of revenue for retailers, she said. “That’s the future,” she said. “It’s not you building another app; it’s leveraging the things that already exist and the habits people already have.”

C-stores can’t be patient, Ryan said. “If we have self-driving cars in the future, you have to be doing something now to prepare for that fuel traffic to go away,” she said. Amazon doesn’t make one massive shift, but several incremental ones. “That’s the Amazon success story: They try things,” she said. “And when they don’t work they move on, and when they do, they iterate on them very, very quickly.”

Rossman said c-stores should start speculating what Amazon’s next move will be. “Act as if their next acquisition will be 7-Eleven,” he said. “I think that gives you more actionable insights to act against.”